THE FIRM AS A NEXUS OF STRATEGIES

Gregory Dow

International Game Theory Review (IGTR), 2004, vol. 06, issue 04, 525-554

Abstract: This paper replaces the standard view of the firm as a nexus of contracts with a repeated game framework where input contributions and side payments are self-enforced. General production technologies and flexible transfers among team members are allowed. When an incentive constraint binds, input demand and output supply are influenced by the discount factor, the probability of exogenous team dissolution, and the aggregate value of outside options. When this incentive constraint does not bind, the firm maximizes profit in the usual way. I discuss examples involving the Cobb-Douglas technology, firms with a single residual claimant, and partnerships.

Keywords: Theory of the firm; team production; repeated games; self-enforcement; implicit contracts; incentive constraints; transferable utility (search for similar items in EconPapers)
JEL-codes: B4 C0 C6 C7 D5 D7 M2 (search for similar items in EconPapers)
Date: 2004
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Citations: View citations in EconPapers (1)

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Working Paper: The Firm as a Nexus of Strategies (1997)
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DOI: 10.1142/S0219198904000344

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